finra funding portal proposed rules
TRANSCRIPT
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Attachment A
Below is the text of proposed Funding Portal Rules.
Funding Portal Rules
Table of Contents
100. General Standards
(a) Application of the By-Laws and the Funding Portal Rules
(b) Definitions
110. Funding Portal Application
(a) Application Process
(b) Fidelity Bond
200. Funding Portal Conduct
(a) Standards of Commercial Honor and Principles of Trade
(b) Use of Manipulative, Deceptive or Other Fraudulent Devices
(c) Communications with the Public
300. Funding Portal Compliance
(a) Supervisory System
(b) Anti-Money Laundering Compliance Program
(c) Reporting Requirements
(d) Contact Information Requirements
800. Investigations and Sanctions
(a) Application of FINRA Rule 8000 Series (Investigations and Sanctions) to
Funding Portals
(b) Public Disclosure of Information on Funding Portals
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900. Code of Procedure
(a) Application of FINRA Rule 9000 Series (Code of Procedure) to Funding
Portals
(b) Eligibility Proceedings
1200. Arbitration and Mediation
(a) Application of FINRA Rule 12000 Series (Code of Arbitration Procedure
for Customer Disputes), FINRA Rule 13000 Series (Code of Arbitration Procedure
for Industry Disputes) and FINRA Rule 14000 Series (Code of Mediation
Procedure) to Funding Portals
(b) Predispute Arbitration Agreements for Investor Accounts
100. General Standards
(a) Application of the By-Laws and the Funding Portal Rules
All funding portal members and persons associated with funding portal members
shall be subject to the FINRA By-Laws, unless the context requires otherwise, and the
Funding Portal Rules. Persons associated with a funding portal member shall have the
same duties and obligations as a funding portal member under the Funding Portal Rules.
For purposes of Section 1(a) of Article III of the FINRA By-Laws, a registered broker or
dealer shall include a registered funding portal.
The terms used in the Funding Portal Rules, if defined in the FINRA By-Laws,
shall have the meaning as defined in the FINRA By-Laws, unless a term is defined
differently in a Funding Portal Rule, or unless the context of the term within a Funding
Portal Rule requires a different meaning.
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(b) Definitions
When used in the Funding Portal Rules, unless the context otherwise requires:
(1) Associated person of a funding portal member or personassociated with a funding portal member
The term associated person of a funding portal member or person
associated with a funding portal member means any sole proprietor, partner,
officer, director or manager of a funding portal, or other natural person occupying
a similar status or performing similar functions, or any natural person directly or
indirectly controlling or controlled by a funding portal member, or any employee
of a funding portal member.
(2) By-Laws
The term By-Laws means the By-Laws of the Corporation or the
FINRA By-Laws.
(3) Exchange Act or SEA
The term Exchange Act or SEA means the Securities Exchange Act of
1934, as amended.
(4) FINRA
The term FINRA means, collectively, FINRA, Inc., FINRA Regulation,
Inc. and FINRA Dispute Resolution, Inc.
(5) Funding Portal
The term funding portal shall be as defined pursuant to Rule 300(c)(2)
of SEC Regulation Crowdfunding.
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(6) Funding Portal Member
The term funding portal member means any funding portal admitted to
membership in FINRA.
(7) Funding Portal Rules
The term Funding Portal Rules means Funding Portal Rules 100 through
1200.
(8) Investor
The term investor does not include a broker, dealer or funding portal.
(9) Person
The term person includes any natural person, partnership, corporation,
association, or other legal entity (provided, however, that for purposes of
paragraph (b)(1) of this Rule the term person shall solely include a natural
person).
(10) SEC
The term SEC means the Securities and Exchange Commission.
(11) Securities Act
The term Securities Act means the Securities Act of 1933, as amended.
110. Funding Portal Application
(a) Member Application Process
(1) Definitions
(A) Associated Person
Solely for purposes of paragraph (a) of this Rule, the term
associated person means any: (1) sole proprietor, partner, officer,
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director or manager of a funding portal, or other natural person occupying
a similar status or performing similar functions; (2) natural person directly
or indirectly controlling or controlled by such funding portal, or any
employee of a funding portal, except that any person associated with a
funding portal whose functions are solely clerical or ministerial shall not
be included in the meaning of such term; or (3) partnership, corporation,
association, or other legal entity controlled by or controlling the FP
Applicant.
(B) FP Applicant
The term FP Applicant means a person that applies for
admission to FINRA as a funding portal member under paragraph (a)(3) of
this Rule or a funding portal member that files an application for approval
of a change in ownership or control under paragraph (a)(4) of this Rule.
(C) Day
The term day means calendar day. In calculating a period of
time, the day of the act (e.g., filing of application, service of notice) from
which the period of time designated begins to run shall not be included.
(D) Department
The term Department means the Department of Member
Regulation of FINRA.
(E) District
The term district means a district established by the FINRA
Regulation Board.
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(2) Service or Filing Date
(A) FINRA shall serve a notice or decision issued under paragraph
(a) of this Rule by electronic delivery.
(B) For purposes of paragraph (a) of this Rule, service by FINRA
or filing by an FP Applicant shall be deemed complete on the date
recorded by FINRAs electronic systems for electronic communications or
by other means of verification prescribed by FINRA.
(3) Application to be a Funding Portal Member
(A) An FP Applicant for FINRA membership shall submit its
application to the Department by filing a Form FP-NMA in the manner
prescribed by FINRA and an application fee.
(B) At the time an FP Applicant for FINRA membership submits
its application pursuant to paragraph (a)(3)(A) of this Rule, the FP
Applicant must submit information, in a format to be prescribed by
FINRA, indicating whether the FP Applicant or any associated person of
the FP Applicant is subject to an event described in Section 3(a)(39) of the
Exchange Act. The FP Applicant must keep this information current and
must update such information promptly, but in any event not later than 10
days following any change in such information.
(4) Application for Approval of a Change in Ownership or Control
(A) A funding portal member shall file an application for approval
of any change:
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(i) in the equity ownership or partnership capital, LLC
membership interest, or other ownership interest of the funding
portal member that results in one person or entity directly or
indirectly owning or controlling 25 percent or more of the equity
or partnership capital, LLC membership interest, or other
ownership interest; or
(ii) of control persons of the funding portal member, other
than the appointment or election of a natural person as an officer or
director of the funding portal member in the normal course of
business, regardless of whether such change occurred as a result of
a direct or indirect change in the equity ownership, partnership
capital, LLC membership interest, or other ownership interest in
the funding portal member.
(B) A funding portal member shall submit its application for
approval of any of the changes described in paragraph (a)(4)(A) of this
Rule to the Department by filing a Form FP-CMA in the manner
prescribed by FINRA and an application fee.
(5) Rejection of Application That Is Not Complete
If the Department determines within 14 days after the filing of an
application pursuant to paragraphs (a)(3) or (a)(4) of this Rule that the application
is not complete, the Department shall reject the application and deem it not to
have been filed. In such case, within the 14 day period, the Department shall
serve a written notice on the FP Applicant of the Departments determination and
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the reasons therefor. FINRA shall refund the application fee, less a processing fee
which shall be retained by FINRA. If the FP Applicant determines to again seek
funding portal membership or approval of a change in ownership or control, the
FP Applicant shall submit a new application and fee under Funding Portal Rule
110(a).
(6) Request For Additional Documents Or Information
Within 14 days after the filing of an application filed pursuant to
paragraphs (a)(3) or (a)(4) of this Rule, the Department shall serve an initial
request for any additional information or documents necessary to render a
decision on the application, and the FP Applicant shall file any additional
information and documents with the Department within 14 days after service of
the Departments initial request. The Department may serve subsequent requests
for additional information or documents at any time during the membership
application process. Unless otherwise agreed by the Department and the FP
Applicant, the FP Applicant shall file any additional information and documents
with the Department within seven days after service of any subsequent request.
(7) Withdrawal of Application
If an FP Applicant withdraws an application filed pursuant to paragraphs
(a)(3) or (a)(4) of this Rule within 14 days after filing the application, FINRA
shall refund the application fee, less a processing fee which shall be retained by
FINRA. If the FP Applicant determines to again seek funding portal membership
or approval of a change in ownership or control, the FP Applicant shall submit a
new application and fee pursuant to paragraphs (a)(3) or (a)(4) of this Rule.
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(8) Membership Interview
(A) Requirement for an Interview
Before the Department serves its decision on an application for
new membership in FINRA, the Department shall conduct one or more
membership interviews with a representative or representatives of the FP
Applicant. The membership interview(s) may be conducted by video
conference or such other means as FINRA may specify.
(B) Service of Notice
At least five days before a membership interview, the Department
shall serve on the FP Applicant a written notice that specifies the date and
time of the interview and the representative or representatives of the FP
Applicant who are required to participate in the interview. The
Department shall serve the notice in a manner consistent with paragraph
(a)(2) of this Rule. The FP Applicant and the Department may agree to a
shorter or longer period for notice or a different method of service under
this subparagraph.
(C) Time
Unless the Department directs otherwise for good cause shown, a
membership interview shall be scheduled to occur within 30 days after the
filing of an application or within 14 days after the filing of all additional
information or documents requested, whichever is later.
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(9) Standards for Granting or Denying Application
After considering an application filed pursuant to paragraphs (a)(3) or
(a)(4) of this Rule, other information and documents provided by the FP
Applicant during the application process, other information and documents
obtained by the Department, and the public interest and the protection of
investors, the Department shall determine whether the FP Applicant meets each of
the following standards, as applicable:
(A) The FP Applicant and its associated persons are capable of
complying with applicable federal securities laws, the rules and
regulations thereunder, and the Funding Portal Rules, including observing
high standards of commercial honor and just and equitable principles of
trade. In determining whether this standard is met, the Department shall
take into consideration all information in its possession, including
information regarding whether an FP Applicant or its associated persons:
(i) is subject to an event described in Section 3(a)(39) of
the Exchange Act; and
(ii) is the subject of a pending, adjudicated, or settled
regulatory action or investigation by the SEC, the Commodity
Futures Trading Commission, a federal, state, or foreign regulatory
agency, or a self-regulatory organization; an adjudicated or settled
investment-related private civil action for damages or an
injunction; or a criminal action (other than a minor traffic
violation) that is pending, adjudicated, or that has resulted in a
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guilty or no contest plea of an FP Applicant or its associated
persons.
(B) The FP Applicant has established all contractual or other
arrangements and business relationships with banks, broker-dealers,
clearing corporations, service bureaus, escrow agents, transfer agents,
technology service providers, or others necessary to initiate the operations
described in the FP Applicants Form FP-NMA.
(C) The FP Applicant has a supervisory system that is reasonably
designed to achieve compliance with applicable federal securities laws, the
rules and regulations thereunder, and the Funding Portal Rules.
(D) The FP Applicant has fully disclosed and established through
documentation all direct and indirect sources of funding.
(E) The FP Applicant has a recordkeeping system that enables the
FP Applicant to comply with federal, state, and self-regulatory
organization recordkeeping requirements.
(10) Granting or Denying Application
(A) If the Department determines that the FP Applicant meets
each of the applicable standards in paragraph (a)(9) of this Rule, the
Department shall grant the application filed pursuant to paragraphs (a)(3)
or (a)(4) of this Rule. The FP Applicants approval for membership shall
be contingent upon the FP Applicants filing of an executed written
membership agreement.
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(B) If the Department determines that the FP Applicant does not
meet one or more of the applicable standards in paragraph (a)(9) of this
Rule, the Department shall deny the application.
(11) Decision
The Department shall serve a written decision on the application
filed pursuant to paragraphs (a)(3) or (a)(4) of this Rule within 60 days
after the filing of the application. If the Department denies the
application, the decision shall explain in detail the reason for denial,
referencing the applicable standard or standards in paragraph (a)(9) of this
Rule. The Department shall serve its decision and the membership
agreement on the FP Applicant in accordance with paragraph (a)(2) of this
Rule. The decision shall become effective upon service.
(12) Appeal of Departments Decision
(A) Request for Review; Final Action
(i) Within 14 days after service of a decision under
paragraph (a)(11) of this Rule, an FP Applicant may file a written
request for review with the National Adjudicatory Councils
Review Subcommittee. A request for review shall state with
specificity why the FP Applicant believes that the Departments
decision is inconsistent with the applicable standards set forth in
paragraph (a)(9) of this Rule or otherwise should be set aside. An
FP Applicant may withdraw its notice of appeal at any time by
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filing a written notice of withdrawal of appeal with the Review
Subcommittee.
(ii) If the FP Applicant does not file a request for a review
or withdraws its notice of appeal, the Departments decision shall
constitute final action by FINRA.
(B) Decision
(i) Within 14 days after the filing of a request for review,
the Department shall transmit to the Review Subcommittee and
serve on the FP Applicant copies of all documents that were
considered in connection with the Departments decision and an
index to the documents. After considering the issues presented in
the review and the transmitted documents, the Review
Subcommittee shall prepare a written decision affirming,
modifying or denying the Departments decision and setting forth
its findings and conclusions. The Review Subcommittee shall
provide a copy of its decision to the Board. Alternatively, the
Review Subcommittee may remand the membership proceeding
with instructions. If the Board does not call the decision for
review under paragraph (a)(12)(B)(ii) of this Rule, the Review
Subcommittee shall issue the written decision after the expiration
of the Board call for review period, and the decision shall
constitute final FINRA action.
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(ii) A Governor may call a membership proceeding for
review by the Board at the next meeting of the Board that is at least
14 days after the date on which the Board received the decision. If
a call for review is made, the Board shall review the membership
proceeding not later than the next meeting of the Board. The
Board shall issue a written decision affirming, modifying or
denying the Review Subcommittees decision and setting forth its
findings and conclusions. Alternatively, the Board may remand
the membership proceeding with instructions. The decision shall
constitute final FINRA action, unless the Board remands the
membership proceeding.
(13) Application to SEC for Review
A person aggrieved by final action of FINRA under paragraph (a) of this
Rule may apply for review by the SEC pursuant to Section 19(d)(2) of the
Exchange Act. The filing of an application for review shall not stay the
effectiveness of a decision constituting final action of FINRA, unless the SEC
otherwise orders.
(14) Filing of Misleading Information as to Membership or
Registration
No funding portal member or person associated with a funding portal
member shall file with FINRA information with respect to membership or
registration that is incomplete or inaccurate so as to be misleading, or that could
in any way tend to mislead, or shall fail to correct such filing after notice thereof.
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(b) Fidelity Bond
(1) General Provision
(A) Each funding portal member shall maintain blanket fidelity
bond coverage that provides against loss and has Insuring Agreements
covering at least the following:
(i) Fidelity
(ii) On Premises
(iii) In Transit
(iv) Forgery and Alteration
(B) The fidelity bond must include a cancellation rider providing
that the insurance carrier will use its best efforts to promptly notify
FINRA in the event the bond is cancelled, terminated or substantially
modified.
(C) A funding portal members fidelity bond must provide for per
loss coverage without an aggregate limit of liability.
(2) Minimum Required Coverage
(A) A funding portal member must maintain minimum fidelity
bond coverage of $100,000 for all Insuring Agreements required by
paragraph (b)(1) of this Rule.
(B) At a minimum, a funding portal member must maintain
fidelity bond coverage for any person associated with the funding portal
member, except directors or trustees who are not performing acts within
the scope of the usual duties of an officer or employee.
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(C) Any defense costs for covered losses must be in addition to
the minimum coverage requirements as set forth in paragraph (b)(2)(A) of
this Rule.
(3) Deductible Provision
A provision may be included in a fidelity bond to provide for a deductible
of up to 10% of the coverage purchased by a funding portal member.
(4) Notification of Change
A funding portal member shall immediately advise FINRA in writing if its
fidelity bond is cancelled or terminated, or substantially modified so that it no
longer complies with the requirements of this Rule.
200. Funding Portal Conduct
(a) Standards of Commercial Honor and Principles of Trade
A funding portal member, in the conduct of its business, shall observe high
standards of commercial honor and just and equitable principles of trade.
(b) Use of Manipulative, Deceptive or Other Fraudulent Devices
No funding portal member shall effect any transaction in, or induce the purchase
or sale of, any security by means of, or by aiding or abetting, any manipulative, deceptive
or other fraudulent device or contrivance.
(c) Communications with the Public
(1) Definition of Funding Portal Communication
For purposes of this Rule, the term funding portal communication
means any electronic or other written communication that is distributed or made
available by a funding portal member to one or more investors.
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(2) Content Standards
(A) No funding portal communication may:
(i) include any false, exaggerated, unwarranted,
promissory or misleading statement or claim;
(ii) omit any material fact or qualification if the omission,
in light of the context of the material presented, would cause the
communication to be misleading;
(iii) state or imply that FINRA, or any other corporate
name or facility owned by FINRA, or any other regulatory
organization endorses, indemnifies, or guarantees the funding
portal members business practices; or
(iv) predict or project performance, imply that past
performance will recur or make any exaggerated or unwarranted
claim, opinion or forecast. A hypothetical illustration of
mathematical principles is permitted, provided that it does not
predict or project the performance of an investment or investment
strategy.
(B) All funding portal member communications must be based on
principles of fair dealing and good faith, must be fair and balanced, and
must provide a sound basis for evaluating the facts in regard to any
particular security or type of security, industry, or service.
(C) All funding portal member communications must prominently
disclose the name of the funding portal member, or the name under which
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the funding portal member primarily conducts business as disclosed on the
members Form FP-NMA.
(3) Issuer Communications
The content standards of paragraphs (c)(2)(A) and (B) of this Rule shall
not apply to any communication on the funding portal members website that is
prepared solely by an issuer; provided, however, that no funding portal member
may include on its website any issuer communication that the funding portal
member knows or has reason to know contains any untrue statement of a material
fact or is otherwise false or misleading.
300. Funding Portal Compliance
(a) Supervisory System
(1) Each funding portal member shall establish and maintain a system to
supervise the activities of each associated person of the funding portal member
that is reasonably designed to achieve compliance with applicable securities laws
and regulations, and with the Funding Portal Rules. A funding portal members
supervisory system shall provide, at a minimum, for the following:
(A) the establishment and maintenance of written procedures to
supervise the activities of the funding portal and its associated persons;
(B) the designation of a person with authority to carry out the
supervisory responsibilities of the funding portal member; and
(C) reasonable efforts to determine that all supervisory personnel
are qualified by virtue of experience or training to carry out their assigned
responsibilities.
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(2) A funding portal member shall permit the examination and inspection
of its premises, systems, platforms, and records by representatives of FINRA and
the Commission, and shall cooperate with the examination, inspection, or
investigation of any persons directly or indirectly using its platform.
(b) Anti-Money Laundering Compliance Program
(1) Program
Each funding portal member shall develop and implement a written anti-
money laundering program reasonably designed to achieve and monitor the
funding portal members compliance with the requirements of the Bank Secrecy
Act (31 U.S.C. 5311, et seq.), and the implementing regulations promulgated
thereunder by the Department of the Treasury. Each funding portal members
anti-money laundering program must be approved, in writing, by a member of
senior management. The anti-money laundering programs required by this Rule
shall, at a minimum:
(A) establish and implement policies and procedures that can be
reasonably expected to detect and cause the reporting of transactions
required under 31 U.S.C. 5318(g) and the implementing regulations
thereunder;
(B) establish and implement policies, procedures, and internal
controls reasonably designed to achieve compliance with the Bank
Secrecy Act and the implementing regulations thereunder;
(C) provide for independent testing for compliance to be
conducted every two years (on a calendar-year basis) or more frequently if
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circumstances warrant by personnel of the funding portal member or by a
qualified outside party;
(D) designate and identify to FINRA (by name, title, mailing
address, e-mail address, telephone number, and facsimile number) an
individual or individuals responsible for implementing and monitoring the
day-to-day operations and internal controls of the program (such
individual or individuals must be an associated person of the funding
portal member) and, pursuant to Funding Portal Rule 300(d), provide
prompt notification to FINRA regarding any change in such
designation(s); and
(E) provide ongoing training for appropriate personnel.
(2) Independent Testing Requirements
(A) Independent testing, pursuant to paragraph (b)(1)(C) of this
Rule, must be conducted by a designated person with a working
knowledge of applicable requirements under the Bank Secrecy Act and its
implementing regulations.
(B) Independent testing may not be conducted by:
(i) a person who performs the functions being tested,
(ii) the designated anti-money laundering compliance
person, or
(iii) a person who reports to a person described in either
paragraphs (b)(2)(B)(i) or (ii) of this Rule.
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(c) Reporting Requirements
(1) Each funding portal member shall promptly report to FINRA, within
30 calendar days, through such means as FINRA may specify, after the member
knows or should have known of the existence of any of the following:
(A) the funding portal member or an associated person of the
funding portal member:
(i) is named as a defendant or respondent in any regulatory
proceeding, whether foreign or domestic, involving an alleged
violation of any securities-, insurance-, commodities-, financial- or
investment-related laws, rules, regulations, standards of conduct or
by-laws, or has been found by a regulatory body or self-regulatory
organization, whether foreign or domestic, to have violated any
securities-, insurance-, commodities-, financial- or investment-
related laws, rules, regulations or standards of conduct;
(ii) is the subject of any written complaint involving
allegations of fraudulent conduct or misuse or misappropriation of
funds or assets;
(iii) is denied registration or is expelled, enjoined, directed
to cease and desist, suspended or otherwise disciplined by any
securities-, insurance-, commodities-, financial- or investment-
related regulatory body or self-regulatory organization, whether
foreign or domestic, or is denied membership or continued
membership in any such self-regulatory organization; or is barred
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from becoming associated with any member of any such self-
regulatory organization;
(iv) is indicted, or convicted of, or pleads guilty to, or
pleads no contest to, any felony; or any misdemeanor that involves
the purchase or sale of any security, the taking of a false oath, the
making of a false report, bribery, perjury, burglary, larceny, theft,
robbery, extortion, forgery, counterfeiting, fraudulent concealment,
embezzlement, fraudulent conversion, or misappropriation of
funds, or securities, or a conspiracy to commit any of these
offenses, or substantially equivalent activity in a domestic, military
or foreign court;
(v) is a director, controlling stockholder, partner, officer or
sole proprietor of, or an associated person with, a broker, dealer,
investment company, investment advisor, funding portal,
underwriter or insurance company that was suspended, expelled or
had its registration denied or revoked by any regulatory body,
jurisdiction or organization, whether foreign or domestic, or is
associated in such a capacity with a bank, trust company or other
financial institution that was convicted of or pleaded no contest to,
any felony or misdemeanor in a foreign or domestic court;
(vi) is a defendant or respondent in any securities- or
commodities-related civil litigation or arbitration, is a defendant or
respondent in any financial-related insurance civil litigation or
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arbitration, or is the subject of any claim for damages by an
investor, broker, dealer or funding portal member that relates to the
provision of financial services or relates to a financial transaction,
and such civil litigation, arbitration or claim for damages has been
disposed of by judgment, award or settlement for an amount
exceeding $15,000. However, when the funding portal member is
the defendant or respondent or is the subject of any claim for
damages by an investor, broker, dealer or funding portal member,
then the reporting to FINRA shall be required only when such
judgment, award or settlement is for an amount exceeding
$25,000;
(vii) is, or is involved in the sale of any financial
instrument, the provision of any investment advice or the financing
of any such activities with any person who is, subject to a
statutory disqualification as that term is defined in the Exchange
Act. The report shall include the name of the person subject to the
statutory disqualification and details concerning the
disqualification; or
(B) an associated person of the funding portal member is the
subject of any disciplinary action taken by the funding portal member
involving suspension, termination, the withholding of compensation or of
any other remuneration in excess of $2,500, the imposition of fines in
excess of $2,500 or is otherwise disciplined in any manner that would
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have a significant limitation on the individuals activities on a temporary
or permanent basis.
(2) Each funding portal member shall promptly report to FINRA, within
30 calendar days, through such means as FINRA may specify, after the funding
portal member has concluded or reasonably should have concluded that an
associated person of the funding portal member or the funding portal member
itself has violated any securities-, commodities-, financial-or investment-related
laws, rules, regulations or standards of conduct of any foreign or domestic
regulatory body or self-regulatory organization.
(3) Each person associated with a funding portal member shall promptly
report to the funding portal member the existence of any of the events set forth in
paragraph (c)(1)(A) of this Rule.
(4) Nothing contained in this Rule shall eliminate, reduce or otherwise
abrogate the responsibilities of a funding portal member to promptly disclose
required information on Form Funding Portal as applicable, to make any other
required filings or to respond to FINRA with respect to any investor complaint,
examination or inquiry. In addition, a member need not report an event otherwise
required to be reported under paragraph (c)(1)(A) of this Rule if the member
discloses the event on the Form Funding Portal or FP-SD Schedule, consistent
with the requirements of those forms.
(5) For purposes of this Rule, Supplementary Material .01 through .07,
.09 and .10 of FINRA Rule 4530 (the Supplementary Material) shall apply,
provided, however, that, as the context requires:
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(A) the term member as used in the Supplementary Material
shall mean funding portal member as defined pursuant to Funding Portal
Rule 100(b)(6);
(B) the term associated person as used in the Supplementary
Material shall mean associated person of a funding portal member or
person associated with a funding portal member as defined pursuant to
Funding Portal Rule 100(b)(1);
(C) Supplementary Material .01 shall apply to paragraphs
(c)(1)(B) and (c)(2) of this Rule;
(D) Supplementary Material .02 and .03 shall apply to paragraphs
(c)(1)(A)(i) and (c)(2) of this Rule;
(E) Supplementary Material .05 and .07 shall apply to paragraphs
(c)(1) and (c)(2) of this Rule;
(F) Supplementary Material .06 shall apply to paragraph
(c)(1)(A)(vi) of this Rule; and
(G) Supplementary Material .10 shall apply to paragraphs
(c)(1)(A)(i) and (c)(1)(A)(iii) of this Rule.
(d) Contact Information Requirements
(1) Each funding portal member shall report to FINRA all contact
information required by FINRA through such means as FINRA may specify.
(2) Each funding portal member shall promptly update its required
contact information (including its executive representative designation and
contact information as required by Article IV, Section 3 of the FINRA By-Laws),
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but in any event not later than 30 days following any change in such information.
In addition, each member shall review and, if necessary, update its required
contact information, through such means as FINRA may specify, within 17
business days after the end of each calendar year.
(3) Each funding portal member shall comply with any FINRA request
for such information promptly, but in any event not later than 15 days following
the request, or such longer period that may be agreed to by FINRA staff.
800. Investigations and Sanctions
(a) Application of FINRA Rule 8000 Series (Investigations and Sanctions) to
Funding Portals
Except for FINRA Rules 8110, 8211, 8213 and 8312, all funding portal members
shall be subject to the FINRA Rule 8000 Series, unless the context requires otherwise,
provided, however, that:
(1) the term member as used in the FINRA Rule 8000 Series shall mean
funding portal member as defined pursuant to Funding Portal Rule 100(b)(6);
(2) the term associated person as used in the FINRA Rule 8000 Series
shall mean associated person of a funding portal member or person associated
with a funding portal member as defined pursuant to Funding Portal Rule
100(b)(1);
(3) the terms rules and FINRA rules as used in the FINRA Rule 8000
Series shall include the Funding Portal Rules;
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(4) for purposes of FINRA Rule 8210(d):
(A) a notice under FINRA Rule 8210 shall be deemed received by
the funding portal member to whom it is directed by mailing or otherwise
transmitting the notice to the last known business address of the funding
portal member as reflected in the Form Funding Portal. With respect to a
person who is currently associated with a funding portal member, a notice
under FINRA Rule 8210 shall be deemed received by the person by
mailing or otherwise transmitting the notice to the last known business
address of the funding portal member as reflected in the Form Funding
Portal. With respect to a person subject to FINRAs jurisdiction who was
formerly associated with a funding portal member, a notice under FINRA
Rule 8210 shall be deemed received by the person upon personal service,
as set forth in FINRA Rule 9134(a)(1). If the Adjudicator or FINRA staff
responsible for mailing or otherwise transmitting the notice to the funding
portal member or person currently associated with the funding portal
member has actual knowledge that the funding portal members address in
the Form Funding Portal is out of date or inaccurate, then a copy of the
notice shall be mailed or otherwise transmitted to:
(i) the last known business address of the funding portal
member as reflected in the Form Funding Portal; and
(ii) any other more current address of the funding portal
member or the person currently associated with the funding portal
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member known to the Adjudicator or FINRA staff who is
responsible for mailing or otherwise transmitting the notice; and
(B) if the Adjudicator or FINRA staff responsible for mailing or
otherwise transmitting the notice to the funding portal member or person
knows that the funding portal member or person is represented by counsel
regarding the investigation, complaint, examination, or proceeding that is
the subject of the notice, then the notice shall be served upon counsel by
mailing or otherwise transmitting the notice to the counsel in lieu of the
funding portal member or person, and any notice served upon counsel
shall be deemed received by the funding portal member or person.
(b) Public Disclosure of Information on Funding Portals
(1) FINRA shall make available to the public information filed by a
funding portal member that is currently or was previously registered with FINRA.
Except as otherwise provided in paragraph (b)(3) of this Rule, FINRA shall make
available any information reported on the most recently filed Form Funding
Portal.
(2) FINRA shall make available to the public information filed by a
funding portal member, in a format to be prescribed by FINRA, indicating
whether the funding portal member or any associated person of the funding portal
member is subject to an event described in Section 3(a)(39) of the Exchange Act.
The funding portal member must keep this information current and must update
such information promptly, but in any event not later than 10 days following any
change in such information.
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(3) FINRA shall not make available:
(A) information reported as a Social Security number or
residential address, information that FINRA is otherwise prohibited from
releasing under Federal law, or information that is provided solely for use
by FINRA. FINRA reserves the right to exclude, on a case-by-case basis,
information that contains confidential customer information, offensive or
potentially defamatory language or information that raises significant
identity theft, personal safety or privacy concerns that are not outweighed
by investor protection concerns;
(B) information reported on Form Funding Portal relating to
regulatory investigations or proceedings if the reported regulatory
investigation or proceeding was vacated or withdrawn by the instituting
authority;
(C) the most recent information reported on Form Funding Portal,
if FINRA determines that:
(i) the information was reported in error by a funding
portal member;
(ii) the information, through amendments to Form Funding
Portal, is no longer relevant to registration.
900. Code of Procedure
(a) Application of FINRA Rule 9000 Series (Code of Procedure) to Funding
Portals
Except for the FINRA Rule 9520 Series, FINRA Rule 9557, and the FINRA Rule
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9700 Series, all funding portal members shall be subject to the FINRA Rule 9000 Series,
unless the context requires otherwise, provided, however, that:
(1) the term member as used in the FINRA Rule 9000 Series shall mean
funding portal member as defined pursuant to Funding Portal Rule 100(b)(6);
(2) the term associated person as used in the FINRA Rule 9000 Series
shall mean associated person of a funding portal member or person associated
with a funding portal member as defined pursuant to Funding Portal Rule
100(b)(1);
(3) the terms rules and FINRA rules as used in the FINRA Rule 9000
Series shall include the Funding Portal Rules;
(4) for purposes of FINRA Rule 9217, a funding portal member may be
subject to a fine under FINRA Rule 9216(b) with respect to any of the following:
(A) failure to timely submit amendments to Form Funding Portal;
(B) Funding Portal Rule 200(c) (Communications with the
Public);
(C) Funding Portal Rule 300(a) Failure to maintain adequate
written supervisory procedures where the underlying conduct is subject to
Rule 9217;
(D) Funding Portal Rule 300(c) failure to timely file reports;
(E) failure to provide or update contact information as required by
Funding Portal Rule 300(d);
(F) Rule 303(f) of SEC Regulation Crowdfunding Confirmation
of Transactions; and
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(G) Rule 404 of SEC Regulation Crowdfunding failure to make
and preserve records in conformance with all applicable laws, rules,
regulations and statements of policy promulgated thereunder, and with the
Funding Portal Rules;
(5) for purposes of FINRA Rules 9134(b)(1) and 9134(b)(2), the
residential or business address, as applicable, as reflected in Form Funding Portal,
in lieu of the Central Registration Depository, shall be acceptable;
(6) for purposes of FINRA Rule 9134(b)(2), service on a contact
employee as set forth in Form Funding Portal, in lieu of Form BD, shall be
acceptable;
(7) for purposes of FINRA Rule 9551(a), FINRA staff may issue a written
notice requiring a funding portal member to file communications with the FINRA
Advertising Regulation Department at least ten days prior to use if FINRA staff
determines that the member has departed from the standards of Funding Portal
Rule 200(c).
(8) for purposes of FINRA Rule 9551(d), the pre-use filing requirement
referenced in a notice issued and served under FINRA Rule 9551 shall become
effective 21 days after service of the notice, unless stayed by a request for a
hearing pursuant to FINRA Rule 9559;
(9) for purposes of proceedings pursuant to FINRA Rule 9810(a),
proceedings may be initiated with respect to alleged violations of Section 10(b) of
the Exchange Act and SEA Rule 10b-5, Funding Portal Rule 200(a) (if the alleged
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violation is misuse of investor funds or assets, or based on violations of Section
17(a) of the Securities Act) and Funding Portal Rule 200(b).
(b) Eligibility Proceedings
(1) Purpose
Funding Portal Rule 900(b) sets forth procedures for a person to become
or remain associated with a funding portal member, notwithstanding the existence
of a statutory disqualification as defined in Article III, Section 4 of the FINRA
By-Laws and for a funding portal member or person associated with a funding
portal member to obtain relief from the eligibility or qualification requirements of
the FINRA By-Laws and Funding Portal Rules. Such actions hereinafter are
referred to as eligibility proceedings.
(2) Definitions
(A) The term Application means FINRAs Form MC-400 for
individuals or Form MC-400A for funding portal members, filed with the
Department of Registration and Disclosure (RAD).
(B) The term disqualified funding portal member means a
funding portal member that is or becomes subject to a disqualification or is
otherwise ineligible for membership under Article III, Section 3 of the
FINRA By-Laws.
(C) The term disqualified person means an associated person of
a funding portal member or person seeking to become an associated
person of a funding portal member who is or becomes subject to a
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disqualification or is otherwise ineligible for association under Article III,
Section 3 of the FINRA By-Laws.
(D) The term sponsoring funding portal member means the
funding portal member or applicant for membership pursuant to Funding
Portal Rule 110(a) that is sponsoring the association or continued
association of a disqualified person to be admitted, readmitted, or
permitted to continue in association.
(3) Initiation of Eligibility Proceeding; Member Regulation
Consideration
(A) Initiation by FINRA
(i) Issuance of Notice of Disqualification or Ineligibility
If FINRA staff has reason to believe that a disqualification
exists or that a funding portal member or person associated with a
funding portal member otherwise fails to meet the eligibility
requirements of FINRA, FINRA staff shall issue a written notice to
the funding portal member or applicant for funding portal
membership under Funding Portal Rule 110(a). The notice shall
specify the grounds for such disqualification or ineligibility.
FINRA staff shall not issue such written notice to funding portal
members or applicants for funding portal membership when no
Application is required pursuant to Funding Portal Rule 900(b)(7).
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(ii) Notice Regarding a Funding Portal Member
A notice issued to a disqualified funding portal member
shall state that the disqualified funding portal member may apply
for relief by filing an Application or, in the case of a matter set
forth in Funding Portal Rule 900(b)(8)(A) a written request for
relief, within 10 business days after service of the notice. If the
funding portal member fails to file the Application or, where
appropriate, the written request for relief, within the 10-day period,
the membership of the funding portal member shall be canceled,
unless the Department of Member Regulation grants an extension
for good cause shown.
(iii) Notice Regarding an Associated Person
A notice issued regarding a disqualified person to a funding
portal member or applicant for funding portal membership under
Funding Portal Rule 110(a) shall state that such funding portal
member or applicant for funding portal membership may file an
Application on behalf of itself and such person or, in the case of a
matter set forth in Funding Portal Rule 900(b)(8)(A) a written
request for relief, within 10 business days after service of the
notice. If the funding portal member fails to file the Application
or, where appropriate, the written request for relief, within the 10-
day period, the funding portal member may not associate or
continue to associate with the disqualified person, unless the
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Department of Member Regulation grants an extension for good
cause shown.
(iv) Service
A notice issued under this paragraph (b)(3)(A) shall be
served by facsimile or electronic mail, or pursuant to FINRA Rules
9131 and 9134, as adopted pursuant to Funding Portal Rule 900(a).
(4) Obligation of Funding Portal Member to Initiate Eligibility
Proceeding
(A) A funding portal member shall file an Application or, in the
case of a matter set forth in Funding Portal Rule 900(b)(8)(A) a written
request for relief, with RAD, if the funding portal member determines
prior to receiving a notice under paragraph (b)(3)(A) of this Rule that:
(i) It has become a disqualified funding portal member;
(ii) A person associated with such funding portal member
or whose association is proposed by an applicant for funding portal
membership under Funding Portal Rule 110(a) has become a
disqualified person; or
(iii) The funding portal member or applicant for funding
portal membership under Funding Portal Rule 110(a) wishes to
sponsor the association of a person who is a disqualified person.
(5) Withdrawal of Application or Written Request for Relief
A funding portal member may withdraw its Application or, as set forth in
Funding Portal Rule 900(b)(8)(A) its written request for relief, at any time prior to
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an appeal by filing a written notice with the Department of Member Regulation
and RAD pursuant to FINRA Rules 9135, 9136, and 9137, as adopted pursuant to
Funding Portal Rule 900(a). A funding portal member may withdraw its
Application after the start of an appeal but prior to the issuance of a decision by
the National Adjudicatory Council by filing a written notice with the Department
of Member Regulation and the Office of General Counsel pursuant to Rules 9135,
9136, and 9137, as adopted pursuant to Funding Portal Rule 900(a).
(6) Ex Parte Communications
The prohibitions against ex parte communications set forth in FINRA Rule
9143, as adopted pursuant to Funding Portal Rule 900(a), shall become effective
under Funding Portal Rule 900(b) when FINRA staff has initiated the eligibility
proceeding and FINRA staff has knowledge that a funding portal member intends
to file an Application or written request for relief pursuant to Funding Portal Rule
900(b).
(7) Relief from Eligibility Proceedings
A funding portal member is not required to file an Application if:
(A) The disqualification arises solely from findings in Exchange
Act Section 15(b)(4)(D) or (E) by the SEC, CFTC or a self-regulatory
organization, and the sanction is no longer in effect.
(B) The disqualification arises solely from a final order specified
in Exchange Act Section 15(b)(4)(H)(i), and the bar is no longer in effect,
provided that there is no final order specified in Exchange Act Section
15(b)(4)(H)(ii), in which case paragraph (b)(7)(C) of this Rule applies.
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(C) The disqualification arises solely from a final order specified
in Exchange Act Section 15(b)(4)(H)(ii), and:
(i) the sanctions do not involve licensing or registration
revocation or suspension (or analogous sanctions), and the
sanctions are no longer in effect; or
(ii) the sanctions do involve licensing or registration
revocation or suspension (or analogous sanctions), the sanctions
are no longer in effect, and the order was entered 10 or more years
ago.
(D) The disqualification arises solely under Exchange Act Section
3(a)(39)(E), and the disqualified funding portal member or person is
subject to the disqualification solely because the member or person has
associated with it any person who is known, or in the exercise of
reasonable care should be known, to the disqualified member or person to
be a person described by subparagraph (A), (B), (C), or (D) of Exchange
Act Section 3(a)(39), unless the associated person controls such
disqualified member or person, or is a general partner or officer (or person
occupying a similar status or performing similar functions) of such
disqualified member.
(8) Matters That May Be Approved After the Filing of an Application
or Written Request for Relief
(A) The Department of Member Regulation, as it deems consistent
with the public interest and the protection of investors, is authorized to
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approve a written request for relief from the eligibility requirements by a
disqualified funding portal member or a sponsoring funding portal
member without the filing of an Application by such disqualified funding
portal member or sponsoring funding portal member if a disqualified
funding portal member or disqualified person is subject to one or more of
the following conditions, but is not otherwise subject to disqualification:
(i) an injunction as described in Section 15(b)(4)(B) of the
Exchange Act that was entered ten or more years prior to the
proposed admission or continuance; or
(ii) a request to change the supervisor of a disqualified
person.
(B) The Department of Member Regulation, as it deems consistent
with the public interest and the protection of investors, may approve, upon
the filing of an Application by a disqualified funding portal member or a
sponsoring funding portal member and written consent to a heightened
supervisory plan, all Applications seeking relief from disqualifications
arising under Section 3(a)(39) of the Exchange Act.
(i) By the submission of a written consent to a heightened
supervisory plan, the disqualified funding portal member,
sponsoring funding portal member and disqualified person waive:
a. the right of appeal to the National Adjudicatory
Council, the SEC, and the courts, or otherwise challenge
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the validity of the supervisory plan, if the supervisory plan
is accepted;
b. any right of the disqualified funding portal
member, sponsoring funding portal member, and
disqualified person to claim bias or prejudgment by the
Department of Member Regulation, the General Counsel,
the National Adjudicatory Council, or any member of the
National Adjudicatory Council, in connection with such
persons or bodys participation in discussions regarding
the terms and conditions of the Department of Member
Regulations approval or the supervisory plan, or other
consideration of the approval or supervisory plan, including
acceptance or rejection of such approval or supervisory
plan; and
c. any right of the disqualified funding portal
member, sponsoring funding portal member, and
disqualified person to claim that a person violated the ex
parte prohibitions of FINRA Rule 9143 or the separation of
functions prohibitions of FINRA Rule 9144, as adopted
pursuant to Funding Portal Rule 900(a), in connection with
such persons or bodys participation in discussions
regarding the terms and conditions of the approval or
supervisory plan, or other consideration of the approval or
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supervisory plan, including acceptance or rejection of such
approval or supervisory plan.
(ii) If the heightened supervisory plan is rejected, the
disqualified funding portal member, sponsoring funding portal
member, or disqualified person shall be bound by the waivers
made under paragraph (b)(8)(B)(i) of this Rule for conduct by
persons or bodies occurring during the period beginning on the
date the heightened supervisory plan was submitted and ending
upon the rejection of the heightened supervisory plan and shall
have the right to appeal such decision pursuant to Funding Portal
Rule 900(b)(11).
(9) Member Regulation Consideration of Applications for New
Funding Portal Members
In all instances where FINRA receives a Form MC-400 or Form MC-
400A under this Rule, and such Application is submitted on behalf of an applicant
for membership as a funding portal member under Funding Portal Rule 110(a),
the Department of Member Regulation shall defer a decision on such Form MC-
400 or Form MC-400A until such time as FINRA has issued a determination on
the application submitted pursuant to Funding Portal Rule 110(a).
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(10) Rights of Disqualified Funding Portal Member, Sponsoring
Funding Portal Member, Disqualified Person, and Department of Member
Regulation
(A) In the event the Department of Member Regulation does not
approve a written request for relief from the eligibility requirements
pursuant to Funding Portal Rule 900(b)(8)(A), the disqualified funding
portal member or sponsoring funding portal member may file an
Application under Funding Portal Rule 900(b)(8)(B). The Department of
Member Regulation may require a disqualified funding portal member or
sponsoring funding portal member to file an Application with RAD,
notwithstanding the provisions of Funding Portal Rule 900(b)(8)(A).
(B) In the event the Department of Member Regulation does not
approve an Application pursuant to Funding Portal Rule 900(b)(8)(B), the
disqualified funding portal member or sponsoring funding portal member
shall have the right to appeal such decision pursuant to Funding Portal
Rule 900(b)(11). If not timely appealed pursuant to Funding Portal Rule
900(b)(11), the decision issued by Member Regulation shall constitute
final action of FINRA and shall become effective immediately.
(11) Appeal of Member Regulations Decision to Deny an Application
or a Written Request for Relief
(A) Notice
A funding portal member or sponsoring funding portal member
may file a written notice of appeal within 25 calendar days after service of
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a decision issued under Funding Portal Rule 900(b). The notice of appeal
shall be filed with the Office of General Counsel, with a copy to the
Department of Member Regulation. The notice of appeal shall state with
specificity why the appellant believes the Department of Member
Regulations decision is not in the best interest of the investing public or
should otherwise be set aside. The notice of appeal shall be signed by the
appellant. Upon notice, and acknowledgment of acceptance of the appeal
from the National Adjudicatory Council, the Department of Member
Regulation shall be afforded time and opportunity to respond to such
appeal.
(B) Stay of Decision
An appeal of Member Regulations decision to deny an
Application or a written request for relief shall operate as a stay of that
decision while the appeal is pending.
(C) After an appellant files a timely appeal, the National
Adjudicatory Council or the Statutory Disqualification Committee shall
appoint two or more members, who shall be current or former members of
the National Adjudicatory Council, Statutory Disqualification Committee,
or former Directors or Governors, to form a subcommittee. The
subcommittee shall review the appeal and recommend a decision to the
Statutory Disqualification Committee.
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(D) Expedited ReviewWhere the failure to promptly review a decision to deny an
Application would unduly or unfairly harm the funding portal member or
sponsoring funding portal member, the Statutory Disqualification
Committee shall provide expedited review upon a showing of good cause.
(E) Withdrawal of Appeal
A funding portal member or sponsoring funding portal member
may withdraw its notice of appeal at any time by filing a written notice of
withdrawal of appeal with the Statutory Disqualification Committee.
(F) Authority of the Subcommittee
The subcommittee shall have the authority to order the appellant
and Member Regulation to file legal briefs, participate in oral argument, or
supplement the record with any additional information. The subcommittee
may, upon a showing of good cause, consider new evidence submitted by
the appellant or Member Regulation.
(G) Decision
After considering all matters on appeal, and, as applicable, the
subcommittee's recommendation, the Statutory Disqualification
Committee shall present its recommended decision in writing to the
National Adjudicatory Council. After considering all the matters
presented in the request for relief, the Statutory Disqualification
Committees recommendation, the public interest and the protection of
investors, the National Adjudicatory Council may affirm, modify, or
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reverse in writing Member Regulations decision. The National
Adjudicatory Council shall provide its proposed decision to the FINRA
Board. If the FINRA Board does not call the decision for review, the
decision shall be served pursuant to Funding Portal Rule 900(b)(3)(A)(iv)
and shall constitute final action of FINRA. A decision to affirm Member
Regulations decision shall be effective immediately. A decision to
approve the Application shall be effective after the SEC issues an order or
acknowledgement letter, as the case may be.
(12) Discretionary Review by the FINRA Board
(A) Call for Review by the FINRA Board
A Governor may call a proposed National Adjudicatory Council
decision regarding an eligibility proceeding for review by the FINRA
Board if the call for review is made within the period prescribed in
paragraph (b)(12)(B) of this Rule.
(B) 15 Day Period; Waiver
A Governor shall make his or her call for review not later than the
next meeting of the FINRA Board that is at least 15 days after the date on
which the FINRA Board receives the proposed written decision of the
National Adjudicatory Council. By a unanimous vote of the FINRA
Board, the FINRA Board may shorten the period to less than 15 days. By
an affirmative vote of the majority of the FINRA Board then in office, the
FINRA Board may, during the 15 day period, vote to extend the period to
more than 15 days.
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(C) Review at Next Meeting
If a Governor calls an eligibility proceeding for review within the
period prescribed in paragraph (b)(12)(B) of this Rule, the FINRA Board
shall review the eligibility proceeding not later than the next meeting of
the FINRA Board. The FINRA Board may order the filing of briefs in
connection with its review proceedings pursuant to this Rule.
(D) Decision of FINRA Board, Including Remand
After review, the FINRA Board may affirm, modify, or reverse the
proposed written decision of the National Adjudicatory Council.
Alternatively, the FINRA Board may remand the eligibility proceeding
with instructions.
(E) Issuance of DecisionThe FINRA Board shall issue and serve its written decision on the
disqualified funding portal member, sponsoring funding portal member, or
disqualified person, and the Department of Member Regulation pursuant
to FINRA Rules 9132 and 9134, as adopted pursuant to Funding Portal
Rule 900(a). The decision shall constitute the final action of FINRA,
unless the FINRA Board remands the proceeding. A decision to deny re-
entry or continued association shall be effective immediately. A decision
to approve shall be effective after the SEC issues an acknowledgment
letter or, in cases involving SEC-ordered sanctions, an order.
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(13) Application to SEC for Review
The right to have any action taken pursuant to this Rule Series reviewed
by the SEC is governed by Section 19 of the Exchange Act. The filing of an
application for review shall not stay the effectiveness of final action by FINRA,
unless the SEC otherwise orders.
1200. Arbitration and Mediation
(a) Application of FINRA Rule 12000 Series (Code of Arbitration Procedure
for Customer Disputes), FINRA Rule 13000 Series (Code of Arbitration Procedure
for Industry Disputes) and FINRA Rule 14000 Series (Code of Mediation
Procedure) to Funding Portals
All funding portal members shall be subject to the FINRA Rule 12000 Series,
FINRA Rule 13000 Series and FINRA Rule 14000 Series, unless the context requires
otherwise, provided, however, that:
(1) the term member as used in the FINRA Rule 12000 Series, FINRA
Rule 13000 Series and FINRA Rule 14000 Series shall mean funding portal
member as defined pursuant to Funding Portal Rule 100(b)(6);
(2) the term associated person as used in the FINRA Rule 12000 Series,
FINRA Rule 13000 Series and FINRA Rule 14000 Series shall mean associated
person of a funding portal member or person associated with a funding portal
member as defined pursuant to Funding Portal Rule 100(b)(1);
(3) the terms rules and FINRA rules as used in the FINRA Rule
12000, FINRA Rule 13000 Series and FINRA Rule 14000 Series shall include the
Funding Portal Rules; and
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(4) the term customer as used in the FINRA Rule 12000, FINRA Rule
13000 Series and FINRA Rule 14000 Series shall include investors as such term
is used throughout the Funding Portal Rules.
(b) Predispute Arbitration Agreements for Investor Accounts
(1) Any predispute arbitration clause shall be highlighted and shall be
immediately preceded by the following language in outline form:
This agreement contains a predispute arbitration clause. By signing an
arbitration agreement the parties agree as follows:
(A) All parties to this agreement are giving up the right to sue
each other in court, including the right to a trial by jury, except as
provided by the rules of the arbitration forum in which a claim is filed.
(B) Arbitration awards are generally final and binding; a partys
ability to have a court reverse or modify an arbitration award is very
limited.
(C) The ability of the parties to obtain documents, witness
statements and other discovery is generally more limited in arbitration
than in court proceedings.
(D) The arbitrators do not have to explain the reason(s) for their
award unless, in an eligible case, a joint request for an explained decision
has been submitted by all parties to the panel at least 20 days prior to the
first scheduled hearing date.
(E) The panel of arbitrators may include a minority of arbitrators
who were or are affiliated with the securities industry.
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(F) The rules of some arbitration forums may impose time limits
for bringing a claim in arbitration. In some cases, a claim that is ineligible
for arbitration may be brought in court.
(G) The rules of the arbitration forum in which the claim is filed,
and any amendments thereto, shall be incorporated into this agreement.
(2) (A) In any agreement containing a predispute arbitration
agreement, there shall be a highlighted statement immediately preceding any
signature line or other place for indicating agreement that states that the
agreement contains a predispute arbitration clause. The statement shall also
indicate at what page and paragraph the arbitration clause is located.
(B) Within 30 days of signing, a copy of the agreement containing
any such clause shall be given to the investor and the funding portal
member shall retain proof of delivery or of the investors
acknowledgement of receipt.
(3) (A) Within ten business days of receipt of the investors request, a
funding portal member shall provide an investor with a copy of any predispute
arbitration clause or investor agreement executed between the investor and the
funding portal member.
(B) Upon request by an investor, a funding portal member shall
provide the investor with the names of, and information on how to contact
or obtain the rules of, all arbitration forums in which a claim may be filed
under the agreement.
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(4) No predispute arbitration agreement shall include any condition that:
(A) limits or contradicts the rules of any self-regulatory
organization;
(B) limits the ability of a party to file any claim in arbitration;
(C) limits the ability of a party to file any claim in court permitted
to be filed in court under the rules of the forums in which a claim may be
filed under the agreement;
(D) limits the ability of arbitrators to make any award.
(5) If an investor files a complaint in court against a funding portal
member that contains claims that are subject to arbitration pursuant to a
predispute arbitration agreement between the funding portal member and the
investor, the funding portal member may seek to compel arbitration of the claims
that are subject to arbitration. If the funding portal member seeks to compel
arbitration of such claims, the funding portal member must agree to arbitrate all of
the claims contained in the complaint if the investor so requests.
(6) All agreements shall include a statement that No person shall bring a
putative or certified class action to arbitration, nor seek to enforce any pre-dispute
arbitration agreement against any person who has initiated in court a putative
class action; or who is a member of a putative class who has not opted out of the
class with respect to any claims encompassed by the putative class action until: (i)
the class certification is denied; or (ii) the class is decertified; or (iii) the investor
is excluded from the class by the court. Such forbearance to enforce an
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agreement to arbitrate shall not constitute a waiver of any rights under this
agreement except to the extent stated herein.